Superannuation funds are eagerly awaiting for the prudential regulator to update its definition of climate change risk and treat it as a mainstream financial threat.

Currently, under APRA’s ESG guidelines climate change risks are currently seen as non-financial matters rather than risks integral to prudent portfolio construction and management.

The new guidelines are expected to be published later this month.

APRA guidance on ESG matters was reviewed recently as part of the regulator’s post-implementation review (PIR) of the superannuation prudential framework to ensure it remains fit-for-purpose.

But these findings ­– complete with new ESG guidelines – have not yet been released.

Australia’s industry funds believe an update of the ESG guidelines will likely reflect the latest movement in fiduciary duty and climate risk.

Liza McDonald, head of responsible investment at First State Super, says she is keen to see more clarity from APRA on the integration of ESG risks and opportunities in investment decisions.

“ESG is certainly mainstream and we would like to see that the prudential regulator considers ESG risks to be material in the investment process,” she says.

“An updated guideline will be helpful otherwise the public and the government might misinterpret its importance,” says Rest chief executive Vicki Doyle.

MinterEllison lawyer Keith Rovers says it seems certain that APRA will now make explicit amendments to ESG guidance given that Geoff Summerhayes, and the regulator have, come out very strongly on the financial aspects of climate change risk – and ESG has certainly ‘mainstreamed’.

Incidentally, MinterEllison briefed Noel Hutley SC and Sebastian Hartford Davison back in October 2016 on behalf of Centre for Policy Development and the Future Business Council.

At the time, the legal firm made it clear that ESG considerations were core business risks having financial implications and directors who did not properly manage climate risk could be held liable for breaching their legal duty of due care and diligence.

APRA came out strongly in support of this position in February 2017 and highlighted clear risks to financial stability, with ASIC highlighting disclosure and governance risks in October 2018 and Reserve Bank of Australia on implications for monetary policy and the broader economy in March 2019.

“Recent statements on climate risk by ASIC’s commissioner John Price in October 2018 and the RBA’s deputy governor, Guy Debelle, in March are evidence of “striking” alignment between Australia’s regulators on “the financial and economic significance of climate change,” Rovers said.


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